GOVERNMENT'S PROFLIGATE FISCAL POLICIES LIKELY TO LEAD TO 1970S-STYLE STAGFLATION

Rather than cure Great Britain's economic recession, Gordon Brown's current fiscal policies are more likely to lead to 1970s-style stagflation, says David B. Smith, a professor at the University of Derby:

• Using the 2009 Budget forecasts, Smith calculates that next year the ratio of government expenditure to national income will rise to 53.4 percent, the highest ratio since World War II and 6.9 percent above the peak recorded in World War I.
• The ratio of public expenditure to private spending, which was 92.4 percent in 2008, will rise to 107 percent in 2009 and 114.5 percent in 2010 -- the highest burden since 1945; the private sector will therefore have to carry more than its own weight in government activity.
• To fund this, public sector net borrowing will increase from 8 percent of national income in 2008-09, to 14.1 percent in 2009-10, and 13.5 percent in 2011-12.

This represents the longest and largest run of fiscal deficits in Britain's peacetime history. There must be serious doubt whether deficits on this scale can be financed in a non-inflationary manner, without very large capital inflows from abroad. And it is hard to see why such inflows should be forthcoming now that the British economy has become so highly taxed by international standards.

[Sound familiar? And by a trivial 2/10th of a percent (49.7 v 49.9%), America is the second highest taxed industrial nation in the world...

and of course; FLASHBACK >

US Budget Deficit: $1.8T; Debt to GDP Ratio Hits Shocking 70% ]

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